Whaley Distributors is a wholesale distributor of electronic components. Financial statements for the year ended December 31, 2021, reported the following amounts and subtotals ($ in millions): 

In 2022 the following situations occurred or came to light: 

a. Internal auditors discovered that ending inventories reported in the financial statements the two previous years were misstated due to faulty internal controls. The errors were in the following amounts: 

2020 inventory..................Overstated by $12 million 

2021 inventory...................Understated by $10 million 

b. A patent costing $18 million at the beginning of 2020, expected to benefit operations for a total of six years, has not been amortized since acquired. 

c. Whaley’s conveyer equipment has been depreciated by the sum-of-the-years’-digits (SYD) method since constructed at the beginning of 2020 at a cost of $30 million. It has an expected useful life of five years and no expected residual value. At the beginning of 2022, Whaley decided to switch to straight-line depreciation. 

Required: 

For each situation: 

1. Prepare any journal entry necessary as a direct result of the change or error correction as well as any adjusting entry for 2022 related to the situation described. (Ignore tax effects.) 

2. Determine the amounts to be reported for each of the items shown above from the 2020 and 2021 financial statements when those amounts are reported again in the 2022, 2021, and 2020 comparative financial statements.

Transcribed Image Text:

Shareholders' Assets Liabilities Equity Net Income Expenses $640 $310 $150 $330 $400 $210 $230 2020 2021 $820 $420 $175